The Bank of England (BoE) is taking the bull by the horns. Faced with double-digit inflation (the consumer price index reached 10.1% in September, a 30-year high), the Bank of England raised its key interest rate by 0.75 percentage points. “This is the first time this year, but also since 1989, that it has achieved such a significant tightening,” Western Union said. Pound Sterling (GBP) fell far from benefiting as the Bank of England warned that the UK economy was likely to experience its longest recession in 100 years, hit by inflation expected to remain above 8% until the third quarter of 2023. The Bank of England now expects 8 consecutive quarters of negative growth between the third quarter of 2022 and the second quarter of 2024, for a cumulative decline of almost 3% of GDP over this period, while last August the BoE expected an overall decline of 2 .1% over 5 quarters.
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Stagflation threatens the UK economy
“If this decline is calculated to be less significant than those observed during recent crises (-22% during the Covid-19 crisis, -6% during the 2008/2009 financial crisis), its duration is cause for concern”, notes WesternUnion. The Bank of England painted the picture of a black scenario called stagflation (slow economic growth and high inflation), so feared by investors.
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What does technical analysis say?
From a technical analysis perspective, the trend is bullish on the Euro against the British Pound. The single currency may rise against the resistances of GBP 0.8890 and GBP 0.9240-0.9250. Conversely, a monthly close below the major support at £0.8183-0.82 would be very negative for the euro.
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In the shorter term, a confirmed breakout of the £0.8785-0.8792 resistance zone would be an encouraging signal for the euro. Conversely, a break below the £0.8565-0.8580 support would favor a bearish acceleration of the euro against the British currency.
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Author’s Statement of Interest